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The Glencore (LSE: GLEN) share price is finally showing some life, soaring 50% in the past six months. That’s despite weak coal prices, the miner’s biggest revenue source.
Instead, investors have focused on the opportunity from green transition-enabling commodities such as copper. Demand is expected to climber higher as Microsoft, Meta Platforms and Alphabet build massive data centres to build artificial intelligence.
Commodity cycle rises
This much-needed rally follows a bumpy few years for Glencore, and the commodity sector generally. Glencore shares are still down 20% over one year, and 30% over three. Yet long-term investors have done well because over five years, the stock has doubled (with dividends on top).
That’s not unusual for this cyclical sector. Commodity prices soared in the aftermath of the pandemic, but were flat last year. As ever, it pays to buy commodity stocks at the bottom of the cycle, and tread carefully near the top.
As always with investing, it makes sense to hold for the long term, on the assumption that the ups will outweigh the downs over the years.
Half-year results, published on 6 August, showed Glencore still struggling, with adjusted core earnings down 14% to $5.4bn and marketing operating profits falling 8% to $1.8bn.
FTSE 100 caution
In another blow, on 8 October broker Berenberg downgraded Glencore from Buy to Hold, citing falling copper production. But other metals including cobalt, zinc, lead, gold and silver are expected to hit targets.
This is particularly frustrating, because the copper price has been flying, up 23% this year to $10,866 per tonne amid supply concerns. Citigroup forecasts the Copper price could hit $12,000 per tonne early next year, before easing in 2026 as disrupted mines resume production.
Silver is also shining, up 70% this year. Coal remains Glencore’s Achilles heel, with earnings before income tax, depreciation and amortisation down 17% in H1. The 2024 buyout of Teck Resources’ steelmaking coal business has yet to pay off.
High stock valuation
Glencore has been generous with the share buybacks, announcing another $1bn on 2 July. The forecast dividend yield is modest at 2.15%, which is forecast to rise to 2.87% in 2026. That’s not exactly a stellar yield though.
As an investor myself, I’m pleased to see my Glencore shares bouncing back. Sadly, I’m still 25% in the red. So I’m hoping for more to come. Will we get it?
Consensus analyst forecasts produce a median share 12-month share price target of 390p, roughly 10% above today’s 354p. Just a month or two back they were forecasting 40% growth, but a lot of that has now been banked. I wouldn’t call Glencore shares a bargain though. They trade on a forward price-to-earnings ratio of 42.
While AI is an opportunity, it’s also a threat, as fears of a potential tech bubble grow. So that’s another risk. For those willing to ride the swings, I think Glencore shares are still worth considering today, with a long-term view.
Investors new to the commodity sector might also check out peers such as Anglo American and Rio Tinto, both of which Berenberg rates more highly than Glencore. Also, Rio Tinto yields more than 6%, which will tempt income seekers.
